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The Ancient Solution to America’s Debt Crisis
Brian Maher

“American Taxpayers Are Now Slaves to Interest Payments.”

So the Heritage Foundation informs us. More from which:

Interest on the federal debt is now so immense that it’s consuming 40% of all personal income taxes. The largest source of revenue for the federal government is increasingly being devoted to just servicing the debt, not even paying it down.

Forty percent of all personal income taxes!

How do you like it? How do you enjoy your involuntary servitude — and the clanking chains of debt that shackle you?

And as Heritage notes: You are not hacking into the overall burden.

You are merely executing interest payments on the overall burden.

You are the wastrel with the monstrous credit card debt who can scarcely satisfy his minimal monthly interest payments — as the balance expands and expands.

What is your present balance?

$33.7 trillion… and rising by the day, by the hour, by the minute, by the second.

$89 Billion in October Alone

Continues Heritage:

The recent monthly Treasury statement from the Fiscal Service showed that the Treasury Department paid $88.9 billion in October on interest for the federal debt. That’s almost double what it paid in October of the previous year. Worse, the Treasury is projecting interest payments for the fiscal year to exceed $1 trillion. Every month that goes by, the Treasury increases that forecast as the outlook worsens.

Thus the American taxpayer is signing checks against a failing bank.

But “we owe it to ourselves,” shriek the Paul Krugmans of this world.

Thus you are enriched by the income streaming into your right pocket… issuing from your left pocket.

You are picking your very own pocket.

The “Keynesian Multiplier”

What of the “Keynesian multiplier” of fame and fable?

That of course is the miracle of water into wine — the theory that each borrowed dollar yields $1-plus of economic benefit.

As we have argued previously… the Keynesian multiplier has taken up division.

It has become the anti-miracle of wine into water.

Since the millennial year 2000… only twice has the gross domestic product exceeded 3% annual expansion.

In the prior two decades 3% annual expansion was a commonplace.

Meantime, the Congressional Budget Office projects average 1.8% annual expansion through 2033.

We are left to conclude that each borrowed dollar packs less and less oomph than the previous.

That is emphatically true when that debt funds not productive investment but nonproductive consumption — which much of today’s debt is.

A distinction exists between them…

Productive Debt vs. Nonproductive Debt

Mr. Michael Lebowitz of Real Investment Advice:

When debt is used productively, the interest and principal are covered with higher profits and sustained economic activity. Even better, income beyond the cost of the debt makes the nation more prosperous.

Conversely, unproductive debt may provide a one-time spark of economic activity, but it yields little to no residual income to service it going forward. Ultimately it creates an economic headwind as servicing the debt in the future replaces productive investment and/or consumption…

The U.S. economy is overly dependent on unproductive debt. Not surprisingly, secular growth rates have been trending lower for three decades. The massive amount of unproductive debt added in the last [few years] will only further reduce future growth rates.

Yet Nero fiddles and fiddles while Rome burns and burns.

Neither major political party will release the fire engines. The resolve simply is not in them.

At most — at most — one of them would merely get a trickle on the inferno.

Does a solution exist?

The Hyperinflation Option

One way out — or partial way out — is hyperinflation on the scale of a Venezuela.

Inflation eases debt’s burdens. Hyperinflation rinses them away altogether.

Yet hyperinflation is a very rough medicine — worse even than the ailment it would cure.

It would reduce each dollar in your wallet to sawdust.

Yet as we have claimed before: Another possible solution exists.

It is an ancient solution.

It may flabbergast and stagger you. You may laugh it immediately out of court.

Yet it may offer the only way out. What is it?

Here we furl back the scrolls of time… to the sunrise of civilization…

The Other Option

The answer is a debt jubilee.

That is, the mass forgiveness of debt.

Heave the ledger book into the furnace. Run a blue pen across the red ink. Wipe the tablet entirely clean.

And begin anew — free of debt.

The practice began some 5,000 years distant in ancient Sumer and Babylon… where a new king would delete the people’s debts.

Was it because the new king was a swell fellow? Or because he was a tribune of the proletariat, a sort of ancient Karl Marx?

It was not. He cleared the books to preserve his hide. He was alert — keenly — to social stability.

An impossibly indebted class is a disgruntled class. And a disgruntled class is a dangerous class to a king.

Forgive Them Their Debts

Economist Michael Hudson is the author of And Forgive Them Their Debts. From which:

The idea was to restore the economy to the stability that existed before widespread debts ran up during the preceding ruler’s reign. What was “restored” was an idealized “original” or “normal” state in which nobody owed debts to the palace…

The idea of debt amnesties was to prevent debt from tearing society apart — to prevent the kind of crisis that the United States has been in since 2008…


Recognizing that a backlog of debts had accrued that could not be paid out of current production, rulers gave priority to preserving an economy in which citizens could provide for their basic needs on their own land while paying taxes, performing their… labor duties and serving in the army…

Even in the normal course of economic life, social balance required writing off debt arrears to the palace, temples or other creditors so as to maintain a free population of families able to provide for their own basic needs… Societies that canceled the debts enjoyed stable growth for thousands of years.

God Himself Decrees Debt Jubilees

The debt jubilee was smuggled into Judaic law — even the Good Book itself. Every 50th year would be a jubilee year, says Leviticus:

You shall make the 50th year holy, and proclaim liberty throughout the land to all its inhabitants. It shall be a jubilee to you; and each of you shall return to his own property, and each of you shall return to his family.

Mr. Porter Stansberry, formerly of Agora’s Stansberry Research, has canvassed the jubilee history.

He identified four requisite elements of an American jubilee. They are these:

    1. The wealth gap must be getting dramatically bigger.

    2. There must be cultural threats from those with different values or from outsiders (in other words, minority populations and immigrants).

    3. The government must be ineffective at providing solutions.

    4. And there must be growing anger toward the “elites.”

Do these conditions presently obtain? We leave the answer to you our reader.

Of course, any such jubilee would bring consequences.

As we have acknowledged previously… it would peel back the lid on a can of wriggling worms…


What about all the creditors a jubilee would clean out?

Not all are villain Wall Street banks. Must the innocent go scratching?

And what of moral hazard?

A jubilee prompts a man to load up on new debt. After all, someone will one day lift the burden from his shoulders.

Who would loan any money at all — knowing one day he may be fleeced and dragooned — and left holding an empty bag?

That is, a debt jubilee would tilt the delicate balance between creditor and debtor. Even more, that is, than it presently tilts.

Regardless, we expect no jubilee of the sort here envisioned.

By our own admission it is not an earnest proposal. Yet what is the solution?

Fifty-two years have lapsed since Mr. Dick Nixon murdered the gold standard… turned loose the printing press… and set us upon our present course and heading… with all possible speed.

Thus a debt jubilee is two years past due.

Are we to dishonor Leviticus — and God on high?




Brian Maher is the Daily Reckoning’s Managing Editor. Before signing on to Agora Financial, he was an independent researcher and writer who covered economics, politics and international affairs. His work has appeared in the Asia Times and other news outlets around the world. He holds a Master’s degree in Defense & Strategic Studies.

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